Taxation on sponsored cars

Shurwhynot

Just a quick question - are GAA players and other high profile people liable to any tax (BIK for example) on sponsored cars given to them for a year etc?

mickdw

Im damn sure they are. Typically they are given cars in return for being a brand promoter involving personal appearances etc. That is surely a taxable benefit.

Shurwhynot

mickdw wrote: »

Im damn sure they are. Typically they are given cars in return for being a brand promoter involving personal appearances etc. That is surely a taxable benefit.

But when it's not their employer providing the car, how would it be classed as a taxable benefit?

barneystinson

Shurwhynot wrote: »

But when it's not their employer providing the car, how would it be classed as a taxable benefit?

Correct, it's not a taxable benefit, as there's no employment.

It depends on the facts of the case but it'll most likely be one of two things:

1. If gratuitously given i.e. With nothing being given to the sponsor in return, then it'll be a gift and potentially liable to gift tax.

2. If the person receiving the car etc is providing something in return then it's most likely a straightforward supply of a service and liable to income tax, with the payment simply in a non-cash form.

mickdw

Surely you are contradicting yourself stating its not taxable only to follow by saying its either taxable as gift or income tax.

CIARAN_BOYLE

mickdw wrote: »

Surely you are contradicting yourself stating its not taxable only to follow by saying its either taxable as gift or income tax.

It's not a bik from employment but it's definitely taxable in someway depending on their agreement.

harr

I definitely think it's taxable income as in getting payments from a company to promote that company in a personal capacity. Instead of cash payments they get a car in the way of bic.

TheShow

probably a loan of some sort, like Berties loans.

Oops69

I'm sure revenue turn a blind eye , given that Our GAA 'stars' are the embodiment of our heroic national character..... well that's what all the AIB and electric ireland ads say anyway.

barneystinson

mickdw wrote: »

Surely you are contradicting yourself stating its not taxable only to follow by saying its either taxable as gift or income tax.

The term "Taxable benefit" has a particular meaning in tax speak, confined to employment relationships.

harr

Oops69 wrote: »

I'm sure revenue turn a blind eye , given that Our GAA 'stars' are the embodiment of our heroic national character..... well that's what all the AIB and electric ireland ads say anyway.

Yep more than likely they have a loop hole somewhere along the line...

amtc

I used to work in a state company where an employee was on gaa team and got 'special' holidays. Drove the rest of us nuts.

On tax, there's a special vat rate on greyhounds and horses of 4.4% brought in by minister of finance in 1970s. Who was a greyhound owner.

paul71

harr wrote: »

Yep more than likely they have a loop hole somewhere along the line...

Please tell us what it is then.

In my view it is clearly liable to gift tax as stated by Barney.

harr

paul71 wrote: »

Please tell us what it is then.

In my view it is clearly liable to gift tax as stated by Barney.

Wouldn't have a clue,
In my opinion it's BIC but unsure how they would go about taxing someone if they don't actually work for said company..

paul71

harr wrote: »

Wouldn't have a clue,
In my opinion it's BIC but unsure how they would go about taxing someone if they don't actually work for said company..

What is BIC?
Do you mean BIK?
That is only charged by employers to employees

Therefore it is chargeable as a gift and should be returned under self assesment

minikin

I understand these cars are returned at the end of the year (see them for sale at a local dealer)
May have a bearing on it.

harr

paul71 wrote: »

What is BIC?
Do you mean BIK?
That is only charged by employers to employees

Therefore it is chargeable as a gift and should be returned under self assesment

Yes Meant BIK ,
What value would you but on a car for year if it's declared as a gift? would tax insurance be included ? would it be priced at the cost of leasing a car ?

chubba1984

As people have already mentioned, there is no employment relationship so there cannot be BIK on the car.

Capital Acquisitions Tax applies on the gift being provided. As the gift is for a specified period, usually 1 year, the specified rate for calculating the value of the gift with a limited interest in Schedule 1 Part 3 (Table of the Capital Acquisitions Tax Consolidation Act 2003 applies. The open market value of the car has the rate applied, which is 0.0654.

Then if the value of the car is less than €45,871 (€45,871 * 0.0654 = €3,000), the annual small gifts exemption of €3,000 applies. This effectively eliminates the gift from CAT.

So, in essence the gift is a taxable gift, but in the majority of cases, due to the value of the car, the annual gift exemption applies thereby making it tax-free in the hands of the recipient.

barneystinson

chubba1984 wrote: »

As people have already mentioned, there is no employment relationship so there cannot be BIK on the car.

Capital Acquisitions Tax applies on the gift being provided. As the gift is for a specified period, usually 1 year, the specified rate for calculating the value of the gift with a limited interest in Schedule 1 Part 3 (Table of the Capital Acquisitions Tax Consolidation Act 2003 applies. The open market value of the car has the rate applied, which is 0.0654.

Then if the value of the car is less than €45,871 (€45,871 * 0.0654 = €3,000), the annual small gifts exemption of €3,000 applies. This effectively eliminates the gift from CAT.

So, in essence the gift is a taxable gift, but in the majority of cases, due to the value of the car, the annual gift exemption applies thereby making it tax-free in the hands of the recipient.

Don't come in here ruining the lads' whinge with your facts...!

mickdw

So if i had a company, i could obtain a car by what ever finance means and gift it to my father and as long as the gift was under 3000 when that rate is applied, there would be no tax implications.
It doesnt seem right that a company can just gift funds away like that.

barneystinson

mickdw wrote: »

So if i had a company, i could obtain a car by what ever finance means and gift it to my father and as long as the gift was under 3000 when that rate is applied, there would be no tax implications.
It doesnt seem right that a company can just gift funds away like that.

If the person receiving the free use of the vehicle is related to a director or employee then it would trigger a BIK under section 121(1)(b)(I)(III) TCA 1997.

mickdw

barneystinson wrote: »

mickdw wrote: »

So if i had a company, i could obtain a car by what ever finance means and gift it to my father and as long as the gift was under 3000 when that rate is applied, there would be no tax implications.
It doesnt seem right that a company can just gift funds away like that.

If the person receiving the free use of the vehicle is related to a director or employee then it would trigger a BIK under section 121(1)(b)(I)(III) TCA 1997.

ok then - same scenario but to a best mate. Company buys car, mate has use of it. Is that ok?

Peregrinus

mickdw wrote: »

ok then - same scenario but to a best mate. Company buys car, mate has use of it. Is that ok?

Yes.

Or you could just give your best mate 3k a year and let him provide his own car.

I would point out that you don't need to own a company to do this - either the car or the cash. You can do it right now, if you're feeling generous. Indeed, it doesn't even have to be your best mate. You could give the 3k a year to me, for example.

mickdw

Thank but you are somewhat missing the point.
Im aware of the 3k that can be gifted tax free.
Part of my point is that the rate applied to arrive at the 3k seems generous and in reality, a 48k car is worth the guts of 10k in depeciation alone year 1.
3k cash gift is nowhere close to financing a 48k car for a year.
My point re the company is that it creates an opportunity to release company money to randomers absolutely tax free and while there is little benefit is such an arrangement from private money for the person giving the gift, in the company scenario, there is an opportunity for all sorts of underhand transactions just to get money out of company tax free.

barneystinson

mickdw wrote: »

Thank but you are somewhat missing the point.
Im aware of the 3k that can be gifted tax free.
Part of my point is that the rate applied to arrive at the 3k seems generous and in reality, a 48k car is worth the guts of 10k in depeciation alone year 1.
3k cash gift is nowhere close to financing a 48k car for a year.
My point re the company is that it creates an opportunity to release company money to randomers absolutely tax free and while there is little benefit is such an arrangement from private money for the person giving the gift, in the company scenario, there is an opportunity for all sorts of underhand transactions just to get money out of company tax free.

No money is leaving the company in the scenario you're proposing?

In any event I'd say that in the event of an audit or Revenue enquiry uncovering this sort of messing, all sorts of unpleasantness would transpire. An inspector looking at it would, for the precise reason that it appears to be an inordinately inefficient use of company money, would rightly suspect that it's a method of extracting value tax free from the company.

They would likely suspect one of a number of things:
that the friend receiving the benefit is actually performing some service (i.e. as an employee) in return for the benefit and therefore a BIK ought to apply.
That the vehicle is actually available for use by the director or their family and therefore a BIK ought to apply.
Something else that gives rise to a payroll tax liability.

Finally, the diversion of a company asset like that would mean that no expenses in relation to that asset would be deductible, so there would be a corporation tax liability due if you could successfully argue that it was a gift.

And that argument would most likely need to be won before an appeal commissioner or a judge, where Revenue have raised an estimate of payroll taxes due and it's up to you to prove your case, that you're just a really sound friend....

mickdw

So get to the crux of it, in reality such a gift will be taxable in some form and it is a benefit far in excess of 3k in reality.
And when i refer to money leaving the company, i mean a depreciating asset being purchased for use by other.

barneystinson

mickdw wrote: »

So get to the crux of it, in reality such a gift will be taxable in some form and it is a benefit far in excess of 3k in reality.
And when i refer to money leaving the company, i mean a depreciating asset being purchased for use by other.

There are different rules for valuing a benefit depending on what tax you're dealing with. Another poster already set out the calculation for gift tax purposes, I haven't checked to see that it's correct.

If it falls into BIK, and let's be realistic the vast majority of such scenarios in real life will, then the income tax rules are that the BIK will be at 30% of the vehicle's original mkt value.

You seem to be bending yourself out of shape over a hypothetical that is very unlikely to arise in real life (and which, if it did arise, would be tackled by Revenue).

mickdw

Not bending myself out of shape just alot of answers here quoting tax laws to prove a case and pointing out 3k gift allowance.
Im making the point that fact that a 48k car can be handed to someone for a year and that it is covered by the 3k gift allowance is a rather generous tax law and as such is likely to abused legally and illegally.

CIARAN_BOYLE

mickdw wrote: »

Not bending myself out of shape just alot of answers here quoting tax laws to prove a case and pointing out 3k gift allowance.
Im making the point that fact that a 48k car can be handed to someone for a year and that it is covered by the 3k gift allowance is a rather generous tax law and as such is likely to abused legally and illegally.

if it sounds to good to be true it probably is.

a wasting chattel is not a capital sum.

Peregrinus

mickdw wrote: »

Not bending myself out of shape just alot of answers here quoting tax laws to prove a case and pointing out 3k gift allowance.
Im making the point that fact that a 48k car can be handed to someone for a year and that it is covered by the 3k gift allowance is a rather generous tax law and as such is likely to abused legally and illegally.

It's not so likely to be abused because it's an extraordinarily inefficient way of getting value to someone.

As you point out yourself, the cost to the donor of providing a 45k car for a year is 10k in depreciation alone. So we're looking at a donor prepared to spend 10k for your benefit. He offers you (a) the free use of a 45k car for 12 months, or (b) 10k in cash, outright (which, assuming you have already used up your CAT threshold, will net you 6.7k after paying CAT). Most sane people will prefer the 6.7k to the use of a flash car for a year. So the number of people choosing the car in order to avoid CAT is not likely to be high enough to cause a revenue problem.

(In fact, when you take account of the amount of excise and VAT included in the 45k cost of the car, when the donor chooses to give the gift by buying and providing a car the revenue may end up with more than they would if the donor provided cash subject to CAT.)